On payment limits: Commission hears rest of the story

It was a long time coming, but commercial agriculture finally got its day in court in the form of a workshop held by the Commission on the Application of Payment Limits to Agriculture.

While there was only one reference to the dreaded E-word, it was clear from the outset that row crop farmers and their organizations saw the meeting as a chance to respond to the months of anti-row crop farmer propaganda from members of Congress and the Environmental Working Group.

“Let's face it, that Web site is the reason we're having this meeting today,” said Roger Johnson, commissioner of agriculture for North Dakota, referring to the EWG Web site that listed raw data on millions of dollars in farm program payments to farmers.

The daylong event was the only public hearing scheduled by the 10-member Payment Limit Commission, which was established as part of a compromise worked out on more stringent payment limit language in the 2002 farm bill. The commission is expected to issue a report on its findings in July or August.

National Cotton Council President Mark Lange, the hearing's lead-off witness, told commission members that the current law's payment limits “are sufficiently restrictive and burdensome to U.S. agriculture.”

Lange noted that the new farm bill tightened payment limits beyond those in previous farm acts and added an adjusted gross income test designed to deny program payments to individuals with off-farm income exceeding $2.5 million.

“Any further restrictions would be tremendously destabilizing to a sector that is only in its second year of recovery from the lowest commodity prices observed in 40 years,” he said. “More arbitrary restrictions on program benefits will also negatively affect U.S. cotton producers' ability to compete globally.”

The commission heard testimony from representatives of two producer-owned cooperatives who explained how their organizations rely on commodity certificates to market members' crops. Legislation proposed by Sens. Charles Grassley of Iowa and Byron Dorgan of North Dakota would eliminate the use of commodity certificates.

David Stanford, vice president for marketing at Lubbock, Texas-based Plains Cotton Cooperative, outlined the intricate procedures and communications required with USDA to ensure that none of its 28,000 shareholders exceed their individual payment limits.

Describing the Riceland Foods cooperative's marketing pool operations, Riceland President and CEO Richard Bell said the cooperative's ability to place commodities under CCC loan and redeem on behalf of members using certificates “is fundamental to the successful operations” of the marketing pools.

The testimony had to be especially gratifying for Bell, whose organization was singled out by Rep. Nick Smith, R-Mich., as a “mega-farming operation that is becoming wealthy from farm program payments,” in a speech aimed at promoting new payment limitation regulations on the House floor last year.

“Judging from the newspaper accounts, you would think we were bigger than Cargill,” Bell told the Payment Limit Commission members, referring to the giant, Minneapolis-based grain trading company. “Our sole purpose in receiving marketing loan gains is to help our members market their crops.”

The former undersecretary of agriculture in the Nixon and Ford administrations said that Riceland received a total of $130.8 million in marketing loan benefits for eligible participants in its 2002/03 seasonal marketing pools. Those were distributed to 6,036 pool members, who received an average of $21,670.

“Without the availability of commodity certificates, that would not have been possible,” he said.

North Dakota's Johnson was the only witness who spoke in favor of tighter payment limits, arguing that the continued negative publicity over farm payments could further damage farm programs.

“I believe that you should strictly enforce a rule of one payment limit per individual,” he told the commissioners.

“The public has always been sold the idea that these payments are going to family farms. When you get away from that, you undermine the support for these programs.”

Johnson, a corn and soybean farmer from Bismarck, said there was ample evidence that farm program payments are capitalized into land values and cash rents, making it more difficult for young people to enter farming.

“It's clear that larger farms have an advantage to bid up farmland values because of the significant income they receive above operational and family living needs,” he noted. “That's true in North Dakota, and I suspect it's true elsewhere.”

He also said he believed farmer incomes should not be higher than the median household income in their area.

That comment drew a response from National Corn Growers Association Chairman Tim Hume, who spoke to the Commission along with other producers, cotton marketers and farm managers who oppose tighter payment limits.

“The average family doesn't have hundreds of thousands of dollars invested in a business or work 80 to 100 hours a week to keep their farm running,” said Hume. “Quite frankly, I'm 32 years old, and I'm not ready yet to settle for using my managerial talent to try to earn an average income.”

Another corn farmer spoke of public misconceptions about farm program payments.

“Farm payments are not gravy,” said Barry L. Heinkhouse, an irrigated corn producer from Colorado. “That's what we need to stay in business. We can't grow corn in our area when it's selling for less than $2 per bushel.”

Heinkhouse said the falling water table in the Ogallala aquifer that serves eastern Colorado has led to increased pumping costs on the 11,000 acres he, his father, brother and brother-in-law farm.

“We have to farm more acres because the margins are much smaller in an irrigated corn operation,” he noted. “Kids are leaving our part of Colorado because they can't make a living in farming. The payment limits in the current law put a cap on what they can earn.”

The Corn Growers' Hume said that if Congress continues to “ratchet down” the limits on farm program payments, it will take away opportunities for other young people to enter farming.

“Without opportunities for success in agriculture, young people will choose alternative careers,” said Hume, who also hails from Colorado. “Overly restrictive payment limitations limit these opportunities and discourage young people from entering production agriculture.”

Hume also challenged the Commission to re-evaluate the definitions frequently cited to describe the type and size of family-owned commercial farm operations. He noted that much has changed in agriculture, requiring many producers to expand in order to maintain profitability.

“The Small Business Administration defines a small business as one having $2.5 million to $3 million in assets, which many small- to medium-sized farming operations have today,” he said. “It's absurd that a farmer with an operation that size has to have a second income from off the farm to keep the farm going.”

It's not just small- to medium-sized farms that would be affected, said Paul Combs, a rice farmer from Kennett, Mo. Tighter payment limits would impact rural communities negatively, as well.

“Simply put, we can't stand any more cuts to agriculture,” said Combs, who spoke on behalf of the USA Rice Federation. “Any additional steps to limit farm program benefits will send areas like my hometown in Kennett, Mo., into a tailspin.”

Combs told the Commission that any further restrictions on payment limits that they might recommend would place farmers as a substantial disadvantage domestically and in an international market that is “already unfair for our producers.

“Payment limits disproportionately affect family farmers of highly capital-intensive crops, particularly rice,” he said. “Arbitrary, uniform limits across all program crops hit rice growers first and hit them hardest.

“And limits on marketing loan benefits are counterproductive because they hit hardest when times are toughest.”

Thomas A. “Tap” Parker, a cotton producer from Lake Providence, La., told the Commission that he began farming 15 years ago with a “an FHA loan, a used tractor and 200 acres of land.

“My father died when I was a teenager, and I didn't have any aunts or uncles to help me,” he said. “But I worked hard, and I've built my operation up to 4,000 acres. Now I'm having to defend the success of my business against those who want to reduce farm programs.”

Parker said subsidies have become a part of farming in this country because U.S. farmers face increasing competition from subsidized growers and manufacturers in other countries. “Until this situation changes, we need subsidies to compete on a very unlevel playing field.”

Referring to comments by North Dakota's Johnson that farm payments were preventing young people from entering farming, Parker said, “I'm one of those guys. Changing the payment limits will actually prevent more of us from getting into farming.”